Silicon Insider: The Valley Returns With Vigor

I've been watching the financial news the last couple of days and noticing how once again Silicon Valley companies like Intel, Apple, eBay and Yahoo are setting the pace, up and down, for the stock market. It reminds me of how, just three years ago, after the dot-com bubble burst, the national media solemnly announced that this was the end of Silicon Valley as a global force.

Well, here we are once again, with Wall Street dancing to the valley's tune: Google is the hottest company on the planet, and a reinvigorated Apple owns the consumer electronics world. The restaurants in Silicon Valley are jammed, the traffic is back, my neighbors who lost their jobs in 2001 are now too busy to hang out at Starbucks, and new startup companies have popped up everywhere.

Silicon Valley is back, once again. As I predicted this would happen in this column a couple years ago, you, dear reader, shouldn't be surprised. But the real question is: Why? What makes the valley so resilient that it always seems to bounce back stronger than ever?

As it happened, I was invited to give a speech last week on just that subject to executives from the Swedish (real-time operating system) software company, Enea AB. I had a lot of time to ponder the topic while stuck in traffic trying to drive the six miles from Sunnyvale to Palo Alto. Here's the gist of what I told them, some of which surprised even me.

Valley Culture Difficult To Recreate

After 50 years of well-financed Silicon Valley imitators rising up all over the world, from Seattle to Bangalore, all with an avowed goal of becoming the next Silicon Valley, why have none yet fully duplicated what happened here? And why, after all this global competition, as well as suffering from one of the highest costs of living in the world, is Silicon Valley still the world's center for technological innovation, for venture capital, for the creation of new companies, and now for the biotech revolution?

The mistake so many valley observers and imitators make in trying to answer this question is they assume the answer is all about companies and individuals. But it is not. In fact, the truth of Silicon Valley has always been that this place is never about the companies you see -- including even Google today -- or the famous CEOs you read about but is instead about the companies and people you don't even know yet, the ones meeting right now in restaurants and living rooms plotting out the next great tech wave.

In other words, Silicon Valley is not about what is but what is about to be; it is not about results but about process, and ultimately it is not about business but about culture. To understand that culture, you have to realize that there are no simple rules or practices but rather a perpetual tension between seeming opposites. That's why the valley is so hard to duplicate: There is no recipe, only a collection of forces in strange and ironic oppositions. And none of these is stranger than the fact that here, in the heartland of entrepreneurial capitalism, the culture most resembles a Marxist dialectic.

Let me give you some examples:

Failure is often success, and success failure -- Silicon Valley is justly celebrated for its success stories: the men and women who start out with little more than a great idea and a lot of pluck and end up as tycoons running great corporate empires. But those stories, thrilling as they are, really mean little to the overall health of Silicon Valley (or to the tycoons themselves: Too few have happy endings). Rather, the real strength of the valley lies in its embrace of failure. Not stupid failure but noble failure -- the mistake that teaches you something about the business, the market, the technology or, most of all, about yourself. The simple fact is that 90 percent of all Valley startups die. Thus, were failure stigmatized here, the valley would disappear almost overnight. Instead, remarkably, we've learned to make failure if not a friend then a teacher and ally.

Risk-taking is risk aversion -- Outsiders tend to look upon valley entrepreneurs as wild mavericks willing to risk everything on a shot at success. But entrepreneurs see it as just the opposite. In a town where mature companies are forever dying, the real risk is in trying to stay at one job for more than a few years. The conservative course is, actually, to take command of your own career, wherever it leads, rather than put your fate in the hands of someone else. Thus, true entrepreneurs see wage earners as the real risk takers.

Bad times are often good times, and good times bad -- Boom times in Silicon Valley are almost always bad for people and companies. Sure, good times can make you rich, but they can also make you stupid. In good times, everybody thinks he or she is a genius, and every decision is brilliant because it always succeeds. Companies grow fat, employees grow lazy, and everybody rushes off in the wrong direction. Good times kill as many companies as bad times. By comparison, bad times discipline companies, force them to think smart and clear out the dross. At the same time, and most important, bad times offer a window of opportunity for entrepreneurs (often newly laid-off employees) to start companies and build their first products under the radar screen while their big future competitors are distracted.

It's good to be big, except when you're small -- There are only two kinds of mid-size companies in Silicon Valley: those racing to become big companies and those that are about to die. The fact is that in the ecology of Silicon Valley, there is no room for mid-size companies. Small startups provide the innovation, the opportunity and exploration of new markets. Big companies offer industry standards, R&D investment and (little discussed) sanctuary during hard times. In this town, you are either the big winner or preparing to become one. Everything else is just cannon fodder, a talent pool for headhunters and acquisitions.

Enlightened management is better than anything but autocratic management -- This is one I suddenly realized while I was preparing my speech. I've long been a staunch advocate of enlightened management, of trusting in employees and all the other tenets of the legendary HP Way. And God knows we need more of it. But as I grow older and watch the success of companies like Oracle and Apple, I have also come to accept that a good old-fashioned corporate dictatorship can work just as well, especially in startups, when the time horizon is so short that there is no time for consensus. Do I like it? No. And I've hated working for autocratic companies. But they do succeed. A valley of family-oriented companies would soon grind to a halt; but conversely, a valley of corporate animals would tear itself apart in a Hobbesian nightmare. In the end, perhaps the answer is what the valley is today: dreaming of enlightenment but willing to fight with tooth and claw to survive.

Learning from the past is almost as good as forgetting the past -- This is hard for a Silicon Valley historian to swallow, but the fact that the valley has no memory is central to its success. Sure, you can learn from past mistakes. But just as often that memory is a drag on the future. In a place where everybody's resume is full of dead companies, dwelling on the past can be paralyzing. Moreover, when the odds against success are so great, pondering that fact can keep you from taking that big chance that changes the world. Spend too much time looking in the rearview mirror and you'll crash into the brick wall just ahead. Far better to leave history to the historians and get on with building the future.

Can It Last Forever?

You might think the enduring presence of these tensions would create a very brittle culture in Silicon Valley, one that could easily shatter if the balance shifted slightly in one direction or the other. And yet, just the opposite seems to be true, the booms and busts of the last 40 years, the perpetual transformation of the valley to adapt to the latest new technologies and markets, and the ongoing creation of hundreds of new companies each year suggest that this is a very resilient and robust business culture.

So, how long can it last? Well, I've predicted the imminent demise of Silicon Valley four different times over the last 25 years. I no longer make that prediction. Rather, having finally learned some of these lessons, I intend to just enjoy what we've got for as long as it lasts.

And I'll have a lot of time to ponder that decision while I sit in traffic.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

Michael S. Malone, once called the Boswell of Silicon Valley, is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury-News, as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, the Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is best-known as the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public-television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the ABCNEWS.com "Silicon Insider" columnist since 2000.